Regulator urges U.S. Congress to act on mortgage finance overhaul

WASHINGTON, March 19

WASHINGTON, March 19 The regulator of housing
finance firms Fannie Mae and Freddie Mac
told lawmakers on Tuesday they need to reduce or eliminate the
government's near total support for the mortgage market to open
the door for private capital and lay the ground for a healthier
market.

The two companies, which help finance about two-thirds of
new U.S. home loans, have been operating under government
control since 2008. Their bailout has cost taxpayers $131
billion.

Both Republicans and Democrats agree they need to eventually
be wound down, but have yet to agree on what should replace
them.

"The U.S. housing finance system cannot really get going
again until we remove this cloud of uncertainty and it will take
legislation to do it," the regulator, Federal Housing Finance
Agency Acting Director Edward DeMarco, told the House of
Representatives Financial Services Committee on Tuesday.

"While FHFA is doing what it can to encourage private
capital back into the marketplace, so long as there are two
government-supported firms occupying this space, full private
sector competition will be difficult, if not impossible, to
achieve," he said.

Many Democrats believe the government needs to continue
playing some role in the mortgage market to help ensure broad
access to credit, and a number of private proposals also
envision keeping some type of federal backstop in place.

"I have been observing a developing 'consensus' among
private market participants that the conforming conventional
mortgage market cannot operate without the American taxpayer
providing the ultimate credit guarantee for most of the market,"
DeMarco said.

"That clearly is one policy outcome, but I do not believe it
is the only outcome," he said. "I believe it is possible to
rebuild a secondary mortgage market that is deep, liquid,
competitive, and operates without an ongoing reliance on
taxpayers or, at least, a greatly reduced reliance on
taxpayers."

Fannie Mae and Freddie Mac do not make loans, but they buy
them from lenders to foster a liquid market. They either hold
the loans in their own portfolios or repackage them as
securities for investors, which they issue with a guarantee.

After years of losses, both companies have returned to
profitability and are now set to return earnings to the U.S.
Treasury, which in turn could dampen the political motivation to
shutter them.

In a filing with the Securities and Exchange Commission last
week, Fannie Mae said it would miss its March 18 deadline for
posting quarterly results as it analyzes how to account for
certain deferred tax assets, which are unused credits and
deductions that can be used to cover future tax bills.

The filing raised the possibility the company could soon be
required to send as much as $62 billion to the U.S. Treasury if
it begins to account for the assets as part of its net worth.

In the filing, Fannie Mae said the deferred tax assets may
have a "material impact" on its 2012 financial statements and
result "in a significant dividend payment" to the Treasury.